With private-sector defined benefit pension coverage declining over the past two decades, the federal government should take more steps to prioritize coverage and benefit adequacy, according to a new consultation paper from the Association of Canadian Pension Management.
The paper said solvency funding relief should be a key priority, with options based on factors including transparency, flexibility and stability. Specifically, the ACPM suggested a one-time extension of the five-year solvency-amortization period to assist pensions through the coronavirus pandemic. To make such a measure effective, the paper suggested bypassing consent from plan beneficiaries, adding a one-time extension would not cause a material decrease in solvency ratios.
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Other measures include providing greater flexibility on the funding of ancillary benefits, which the paper said could provide funding relief with limited impact on the security of core benefit promises, along with retaining the current five-year payment period and three-year smoothing, while only requiring the funding of deficits below a lower threshold, such as 85 per cent, for a three- or five-year period. This approach would provide relief to plans which are already well-funded and maintain an adequate level of security for beneficiaries of plans, the paper said.
In addition, the paper said any government initiatives should be aligned with the Office of the Superintendent of Financial Institutions’ supervisory approach, citing a scenario in which the OSFI refrains from increasing funding to DB plans through its discretionary authority, at a time when the federal government is granting or contemplating solvency funding relief. “Indeed, had the OSFI implemented initiatives in 2020 regarding replicating portfolio methods and assumptions this would likely have more than offset any relief granted by the government in connection with the 2020 solvency funding moratorium for many sponsors.”
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